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2. Vehicle Emission Standards and the Deadweight Loss from Regulating SUVs (6p) Suppose the demand curve for sport utility vehicles (SUVs) is given by: x
2. Vehicle Emission Standards and the Deadweight Loss from Regulating SUVs (6p) Suppose the demand curve for sport utility vehicles (SUVs) is given by: x = 6005p where x is the quantity sold in thousands, and p is the price in thousands of dollars. The car companies' supply curve for SUVs (in the same units) is given by: x = =50+ 5p a) How many SUVs are demanded, and at what price? (1p) Suppose new vehicle emission standards are introduced. They require design changes that raise the cost of manufacturing an SUV by 5,000 dollars. b) What will be the change in consumer surplus? What will be the change in producer surplus? What is the change in total welfare for the two groups actors considered in this setup? (3p) c) Are the standards a good or bad thing? What sort of information would we need to get a definitive answer? Provide a short answer (2-4 sentences). (2p)
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